Let me start with three articles of faith:

1. That economic growth is largely driven by advances in technical knowledge and innovation, particularly new information and communication technologies.
2. That a critical element of innovation is investment by business in R&D and capturing commercial advantage from this.
3. That successful collaboration between universities and industry is a necessary condition for commercialising innovation for Australia's advantage.
   All of these are true, but not particularly illuminating in helping me to address today's topic of the future of university/industry collaboration. Because each of these statements fails to tell the full story.

Innovation is clearly a prime driver of economic growth, but innovation does not equate with technology, least of all information technology.

Neither is business expenditure on R&D a good surrogate for measuring innovation capability across all areas of economic activity in Australia.

And while I am not a critic of Australian universities' record of linkages with industry to transfer and commercialise knowledge, I believe that we often focus on the least important aspects of the potential of this partnership to boost Australia's prosperity.

My comments today are drawn from recent research commissioned by my organisation, the Australian Business Foundation. The Australian Business Foundation is an independent, business-sponsored think tank which aims to advance knowledge and spread new thinking about what will make Australian businesses more globally competitive and capable of generating jobs and prosperity for the widest reach of the Australian community.

The first piece of research relevant to today's topic gazed into the future – to the year 2015. With the help of futurists, GBN Australia, we delved into the key trends, forces for change and critical uncertainties for business and imagined four alternative scenarios for business in Australia to the year 2015. (GBN Australia 1999 Alternative Futures: Scenarios for Busines in Australia to the Year 2015, Australian Business Foundation.)

These different pictures of the future arose from our analysis of how such crucial trends and factors would play out and how they could impact differently. The main forces at work, equally relevant to looking at the future of industry/university collaboration, that we discerned were:

• increasing globalisation and its effects on national boundaries, cultural identity, political decisions, and on the speed and ease of business imitations;

• the unprecedented transformations being wrought on business and commerce by online, open, networking technologies;

• the power of the new consumerism, with production decisions shifting from producers and owners of capital to consumers;

• the rise of the knowledge economy and the ascendancy of intangibles, where what you know is more important that what you make;

• the far-reaching effects of new technology advances and the convergence and recombination of old technologies in everything from bioscience to broadcasting;

• new skills and competencies required to compete in an increasingly wired, informed and connected world; and

• the likely impacts on social cohesion of the way the world is moving, whether it's the gap between the information rich and the information poor, or the increasing mainstream concern with environmental issues and the social record of businesses.

What are the key lessons from these trends?

The main one in my view is that innovation is the critical factor in whether we make the grade in the future.

It is about ensuring that more and more Australian enterprises are competing on the basis of cleverness and know-how in a world where free and fast information flows reduce the shelf-life of ideas, the duration of first mover advantage, and the product cycles in businesses. In fact, continuous innovation is now a survival strategy.

This is not just a matter of business investing in new technologies and scientific advances.

Or, universities doing a better job of finding and tailoring solutions to business problems based on their research.

Or even, of ensuring that the wealth of research and knowledge locked up in faculties, laboratories and student PhD's is more accessible to enterprises who need it to compete with the next new thing.

This kind of continuous innovation poses the question for those interested in commercialising university knowledge of how you can help firms discover what the "smart" part of their business is.

What is it that you can offer that gives these firms an edge, that makes customers buy from them and keep coming back for new and better offerings.

What can you provide that gives a business the essential ingredients that are hard for others to copy or to substitute, that allows a firm to recognise, create and mobilise its distinctive sources of know-how.

That's the slide rule that will increasingly be used to measure the value of industry/university collaboration in the future; not how many patents you've lodged or what licensing agreements or joint ventures have been established, or the number of spin-off firms you've created.

This leads me to the next piece of research commissioned by the Australian Business Foundation which has something to say on the subject of innovation. It's called Innovation Checkpoint 1999 by Professor Jane Marceau and Dr Karen Manley of the Australian Expert Group on Industry Studies at the University of Western Sydney.

This was a brief study to stocktake Australia's business innovation performance two years on from the Australian Business Foundation's inaugural study by Professor Jane Marceau et al, The High Road or the Low Road? Alternatives for Australia's Future.

The High Road or Low Road judged Australia to be underperforming on a number of indicators associated with innovative, knowledge-intensive economies.

For example, business expenditure on R&D was low by international standards. More low-skill, low paid jobs were being created than the opposite. And, Australia's trade patterns and industrial structure were skewed towards low-tech, low growth areas of economic activity, contrary to trends elsewhere in the OECD.

What did Innovation Checkpoint discover when it looked again at some of the data on key activities involved in business innovation?

The overall conclusion is that while Australia has made good progress in some areas, it still lags world-class innovation performance.

On the plus side, there has been: continued growth in knowledge-based service industries; increasing investment in machinery and equipment which embodies knowledge and new technology; rises in venture capital, helping to turn good ideas into commercialised outcomes; and faster growth of high-skilled jobs compared to low-skilled jobs since 1996.

But, Innovation Checkpoint also identified five negative trends:

Falls in R&D expenditure and numbers of R&D personnel – this has been much publicised and criticised lately. Marceau and Manley quote falls in Business Expenditure on R&D, as a percentage of value added, of 9.6% between 1995/6 and 1996/7 and an 18% fall between 1996/7 and 1997/8. Similarly, business personnel working on R&D grew strongly between 1984 and 1995, but have declined since, 9.5% between 1995/6 and 1997/8.

Fewer manufacturing businesses are involved in either product or process innovation – this comes from two ABS innovation surveys, one covering the period 1991 to 1994 and the second from 1994 to 1997.

The percentage of manufacturing businesses undertaking technological innovation fell by 6 percentage points between the two surveys, from 32 to 26%. This, together with our low ranking on BERD, and our relatively low expenditure on technological innovation as a proportion of sales, if not addressed, will seriously undermine our position as a knowledge-based economy.

Poor Australian management skills – the quality of innovation skills, particularly those of Australian managers, is less than optimal. A 1998 investigation by Arthur D Little concluded that Australian managers had failed to appreciate and capture the value of innovation to the same extent as their international counterparts and had overestimated their own innovation capacity and performance.

Industry and trade structure is skewed –. the composition of Australia's manufacturing sector (Australia's biggest investor in R&D and innovation) is under-represented in high and medium technology sectors. Across OECD countries, between 1980 and 1996, the high technology manufacturing sector was the only group of manufacturing industries growing as a proportion of GDP. In Australia, this sector was shrinking as a proportion of GDP. Australia's trade patterns are also concentrated towards the lower technology, lower growth areas of economic activity.

Training and education hours – the low and falling commitment of employers to staff training is seriously undermining Australia's innovation efforts because of the importance of skills in transforming information into knowledge and knowledge into innovation. Training hours per employee have fallen about 17 percent between 1990 and 1996.

Marceau and Manley conclude that Australia still has a long way to go on the road to the "can do" country, or the knowledge nation. They call for sophisticated policy developments and further commitment and investment by both the public and private sectors to make innovation a hallmark of Australian economic, business and educational life.

One government program they single out as being on the right track to improve innovation is the Action Agenda process, where leaders of industry and public officials are beginning to undertake the joint analysis and stocktakes needed in specific sectors to share knowledge, advance learning, and frame visions about industry possibilities and targets for the future of their sector.

The key message that I take out from the Innovation Checkpoint work is that if you are focused only on formal R&D and taking specific new technologies to market, then you are defining Australia's innovation potential too narrowly. And, missing out on the main action for future industry/university collaboration.

Rather, the questions we need to answer are the following. What can you do to make it easier or more likely that firms will innovate?

Not just innovation meaning technology, inventions or breakthroughs. But doing old things more intelligently, managing people better, turning novel ideas into viable businesses, and gradually improving and adapting the way work is done and how businesses are organised.

What can universities do to boost managerial competencies, to forge international alliances, to help train, develop and retain the necessary skills for Australian firms to continuously improve, adapt and operate globally?

Let me quote from another Australian Business Foundation commissioned study, released late last year, from Professor John Mathews of the Macquarie Graduate School of Management, entitled Encouraging Knowledge-Intensive Industries. What Australia can draw from the industrial upgrading experiences of Taiwan and Singapore:

"Lack of technical ingenuity is certainly not Australia's problem.......The point is that the performance of R&D cannot be equated with innovation in industry and technological upgrading to secure and maintain international competitiveness.

When this perspective is taken, Australia can learn some valuable lessons from its East Asian neighbours. In Taiwan, for example, industry is kept under constant pressure to maintain its innovative activity, ie to keep renewing itself technologically.

This does not involve firms being required to generate "new knowledge" but ensuring that they have access to the latest and most important technological breakthroughs, and they actually implement them in their products and processes.

The institutional framework within which business functions brings about this result – the tax system, assistance to locate sources for technological innovation, securing access to technologies, mechanisms to diffuse them rapidly and widely through the private sector and by R&D consortia, incubators, etc......

It is even more importantly concerned with the creation and operation of institutional machinery for managing the process of diffusion of new techniques throughout the economy."

The core concept here is about scanning for knowledge, and the successful diffusion and application of new processes and technologies.

The central challenge for us all is to create and unleash the flow of ideas, to diffuse knowledge so it informs and guides day to day business decisions. And beyond that, to enrich and build on knowledge to find new commercial value. Knowledge must be turned into new capabilities.

One important lesson from the business experience is that such knowledge comes from a wide variety of sources – competitors, customers, suppliers, informal intelligence and past failures. It does not necessarily always equate with data gleaned from formal research and development.

An OECD researcher and economist, Keith Smith, made this point graphically in a 1998 conference paper covering his examination of high growth industries in Norway. (Specialisation, Innovation & Growth across Heterogenous Economies: Issues for Policy, OECD Conference on Innovation Systems: Growth Engines for the 21st Century. Sydney, November 19 and 20)

He uncovered some surprising findings about which sectors were showing best performance.

The usual high tech suspects were there, of course, information technology and telecommunications companies.

But, unexpectedly, also at the top of the list were sectors not known for their technological advances or for their investment in research or scientific breakthroughs – mature, traditional wood and timber products industries.

On closer inspection, Smith discovered that these apparently low-tech industries enjoyed strong growth due to high levels of innovation based on other more informal means of ideas generation and knowledge diffusion.

Norway's wood and timber products industries are research-poor, but knowledge-rich, because they have regular, deep and substantial linkages between industry, scientific researchers, designers and marketers that serve to ensure the latest market intelligence, consumer preferences and scientific problem-solving
are brought together to aid production and business decisions in real time.

They have strong mechanisms and opportunities to talk to each other and pass on tips and ideas, that they make use of immediately in their day to day work.

And while informal, these arrangements are systematic and comprehensive, so that spreading useful knowledge around is not dependent on single individuals or organisations. Rather, it is "the way we do things around here", it is embedded in their operations and practices automatically.

This is the same story that Australia's wine industry has to tell, according to AGSM's Professor Ian Marsh in his study for the Australian Business Foundation, to be launched next month. (Marsh I and Shaw B (2000) Australia's Wine Industry: Collaboration and Learning as the Causes of Competitive Success, Australian Business Foundation.)

The critical factor in the transformation of the Australian wine industry from domestic commodity products to global, quality premium brands is the strategic collaboration and the joint learning that helped shape its export focus, marketing advances and wine making innovations.

To conclude, the future of university/industry collaboration is not a linear progression from mind to market. I suspect it's something considerably more chaotic and organic, characterized by multiple feedback loops, fuzzy boundaries and tacit not codified knowledge.

John Seely Brown and Paul Duguid in the May/June 2000 edition of the Harvard Business Review called it a balancing act between rigidity and chaos. ( Balancing Act: How to Capture Knowledge Without Killing It. Harvard Business Review, May-June 2000, 73-80.) Between over-managing new knowledge and thereby stifling the products of creativity, and letting ideas just run amok with no way of getting anything useful to market in a timely fashion.

And, increasingly, it's a balancing act that occurs at high speed and without a safety net.

So, it's a good thing that those of us committed to the future of university/industry collaboration adhere to the motto: "If you're not living on the edge, then you're taking up too much room!"